What Do NWMLS Medians, Case-Shiller and Other Statistics Indicate?

Last Friday the NWMLS released its official numbers for August, 2009. King County SFR came in at a $375,000 median, with sales just over 1,609. Does that mean anything to anyone?

Late last month, Case-Shiller came out with its number for King, Pierce and Snohomish counties for June. That was 149.53. Does that mean anything to anyone?

What if I told you that August, 2008 sales were 1533 and that the median that month was $423,950? That is an increase in volume of 76, but a decrease in price of almost $50,000. What does that mean?

What if I told you that August, 2007 sales were 2,310, and the median was $449,950?

What if I told you that Feburary 2009 sales were 661 and the median was $375,000?

What does all this tell you? People like to think it gives them some idea of the value of their home, but does that have much validity? In reality, these numbers only give you some idea of the health of the real estate market. In August 2007 the market was healthy, arguably too healthy. In February 2009 the market was very weak. These numbers do not give you an estimate of the value of your home, or a home you might want to buy.

Let’s say you bought a home in August 2007. Can you take any of these numbers and determine the value of your home today? Or what if you want to buy a house today that sold in August 2007. Can you tell from these numbers how much you should offer?

My answer to both of those questions is no. Both the NWMLS number and Case-Shiller are flawed in ways that make them nearly completely useless for valuing specific homes, and in fact neither tool was ever intended to do that. The NWMLS number, for example, covers too large of an area (King County), and also the mix of properties has changed considerably since August 2007. Most significantly, we now have a lot more short sales and REO sales. If you removed those from the mix, the median for King County would probably be at least $25,000 higher. Case-Shiller also covers too large of an area–three counties instead of just one–and thus is also not terribly meaningful. In addition, the latest date they have data available for is June, and this is September. The NWMLS at least already has data for August, and thus is much more timely.

But let’s compare some numbers. NWMLS and Case-Shiller June 2007 to June 2009, as well as a specific neighborhood–mine in a part of Fairwood. For that we’ll use sales of 3-4 bedroom 2.25+ houses over 2000 square feet, built before 2001 and sold between March 9 and September 1 of 2007 and 2009.

From June 2007 to June 2009, the NWMLS median for King County dropped 16% (470,000 to $395,000).

From June 2007 to June 2009, Case-Shiller for the three county area dropped 22% (191.92 to 149.53). (I should point out that the difference of over 4% between C-S and the NWMLS was particularly large for June. For May it was only about .5%.)

For sales in my area the median price dropped 20% ($293,472 to $315,000) But if you exclude golf course sales (one each period), the drop is 21%. Both these numbers are closer to Case-Shiller’s drop of 22%, but does that mean Case-Shiller is better? No. I could pick other neighborhoods/property types where Case-Shiller and NWMLS were too low and others where they were too high. For example, 2 bedroom, 1 bathroom homes in Skyway dropped 38% comparing the same time periods as above. Neither the NWMLS median or C-S gives the owners of such Skyway properties any idea how much their property value has gone down.

To the extent either the NWMLS or C-S changes are even close to the situation for any particular property, that is practically mere coincidence. It is nothing you can count on by any means.

So what do the recent numbers mean? To me all they indicate is that the market is healthier than it was at the beginning of the year, but not as healthy as it was two years ago. That means that it’s better to be a seller now than it was in January, but worse than it was in 2007. And just the reverse for buyers. It’s as simple as that, and nothing more.

(Numbers from NWMLS sources, but not compiled or guaranteed by the NWMLS.)